Under the FIIP, Canada offers permanent residence in exchange for a guaranteed $800,000 loan (before 2010, the amount was $400,000). The FIIP has long faced criticism. In 2010, Ryan Rosenberg, a Partner at our firm, wrote in The Canadian Immigrant that:

Many savvy investors, like my client, look at a $400,000 investment without interest as a lost opportunity and, instead of investing the full amount, seek out financing from one of a number of government-authorized financial intermediaries (“banks”).

For years now, the banks themselves, consultants and lawyers have promoted a financing option at $120,000. For $120,000, a bank will lend an investor funds required for investment under the program and facilitate the investment itself. The investor is also required to sign an assignment of the $400,000 refund from the government to the bank at the end of the five-year term.

The $120,000 covers all interest charges and bank fees associated with the investment and at the end of the five-year term the investor receives no money in return. So where does all that money go?

Based on today’s interest rates (which we know are going up sometime soon), the cost to finance a $400,000 loan for five years is about $1,000 a month in interest alone. So, over 60 months, the cost should run about $60,000. If any of the $120,000 payment is used to bring down the total amount borrowed (think of it like a down payment on your house), the monthly interest payment would also drop. So, if $60,000 of the $120,000 goes to the bank for interest that does seem quite reasonable. Banks are in the business of lending money, after all.

So now we are left with $60,000 — where does that money go?

Commission omission

And it isn’t only $60,000 left in the pool. It’s more like $88,000. Theoretically, it is the provinces who benefit from the $400,000 investments made under this program; in return for raising money, the provinces pay out a commission of $28,000 to the banks and that commission trickles down to the consultant and lawyers (a large number of whom aren’t even Canadian taxpayers) who refer clients to the banks.

Most banks top up that commission and my research shows a range in commissions payable to consultants and lawyers of $23,000 to $58,000. Assuming $58,000 goes to the referring party, $30,000 of the $88,000 remains for the bank in addition to the $60,000 earned in interest, for a total of a $90,000 profit. Although most were forthcoming, when I called one of our banks to ask about their terms under the program, the representative refused to tell me what commission they were willing to pay.

When I explained to her that I wanted to know because I wanted to tell my client where his money was going, she was shocked and appalled that I would be so honest with him. Most people, she explained, don’t tell their clients about the commission. I’ve come to learn that the $120,000 financing option is so popular and is marketed so well that most immigration practitioners rely on it without any consideration to other options or where the money goes.

I’ve also come to learn that the practice of not disclosing commissions to clients is also widespread in the consulting community and quite possibly in the legal community albeit to a lesser extent based on the people I’ve talked to.

In addition to questionable practices surrounding commissions, the Government of Canada began to question whether the FIIP was attracting the type of immigrants that the Government of Canada wanted. According to CIC, over a 20-year career, an immigrant investor pays about $200,000 less in income taxes than a federal skilled worker and almost $100,000 less in taxes than one live-in caregiver. A CIC backgrounder further stated that:

A recent survey concluded that immigrant investors have the lowest official language ability of any immigrant category, including refugees. Official language ability is a key factor in the successful integration of immigrants. Data also indicate that immigrant investors are less likely than other immigrants to stay in Canada over the medium to long term.

The existing IIP is of limited economic benefit to Canada. There is very little “new” money coming into Canada. Almost all initial investments made through the program come from loans from Canadian banks to provincial governments.

The amount of IIP capital actively invested in economic development initiatives has been disappointing. The requirement for provinces to guarantee repayment of IIP investments after five years limits their ability to invest funds into more high-risk initiatives that tend to reap greater rewards for Canada in terms of true innovation and job creation. Fifteen years after provinces and territories were factored into the equation, less than half of the funds are actively invested.

Step by Step to Termination

The first change that the Conservative Party of Canada made to the FIIP was to increase the required investment amount from $400,000 to $800,000, and “pause” the intake of applications. At the same time, Citizenship and Immigration Canada’s Ministerial Instructions II stated that FIIP applications submitted after June 26, 2010, would be processed concurrently (rather than after) applications submitted before. MII stated:

Federal Immigrant Investor applications received on or after the coming into force of the proposed regulatory amendments to the definitions of “Investor” and “Investment” applicable to Business Immigrants in Division 2 of Part 6 of the Immigration and Refugee Protection Regulations shall, as a category, be processed concurrently with those federal applications received prior to the administrative pause in a ratio consistent with operational requirements.

Operational Bulletin 252 provided even further instructions, stating that for every two $400,000 investor applications visa offices had to process one $800,000. OB 252 stated:

In addition, effective December 1, 2010, visa offices are to put new applications under the federal IIP – those received on or after December 1, 2010, – into process immediately. New and old (i.e. applications under the federal IIP received before June 26, 2010) applications will be processed concurrently. As a general rule, visa offices should process applications under the federal IIP in a 2:1 case processing ratio of old inventory applications to new applications received on or after December 1, 2010. The concurrent case processing ratio of 2:1 is provided as a guideline only; this ratio may change over time in accordance with operational requirements and may not apply equally to all visa offices depending on the volume of investor class applications processed by a given visa office.

In January, the Federal Court dismissed an application by several investors who sought that the court order Citizenship and Immigration Canada to expedite the processing of their application. An affidavit filed in support of Citizenship and Immigration Canada, which we have obtained, provides useful insight into how bogged down visa posts were with applications, and how long it would likely take for many applications to even be opened.

The Government of Canada is committed to immigration that contributes to job creation and economic growth. In recent years, significant progress has been made to better align the immigration system with Canada’s economic needs.

The current Immigrant Investor Program stands out as an exception to this success. For decades, it has significantly undervalued Canadian permanent residence, providing a pathway to Canadian citizenship in exchange for a guaranteed loan that is significantly less than our peer countries require. There is also little evidence that immigrant investors as a class are maintaining ties to Canada or making a positive economic contribution to the country. Overall, immigrant investors report employment and investment income below Canadian averages and pay significantly lower taxes over a lifetime than other categories of economic immigrants. For these reasons, the Immigrant Investor Program has been paused since July 2012 and the Entrepreneur Program since July 2011.

Economic Action Plan 2014 proposes to end these underperforming programs.

To eliminate the existing backlog, which is diverting resources away from better performing economic immigration streams, the Government intends to return applications and refund associated fees paid by certain federal Immigrant Investor Program and Entrepreneur Program applicants who applied on or before Budget Day.

In place of the current Immigrant Investor Program, the Government will introduce a new Immigrant Investor Venture Capital Fund pilot project, which will require immigrants to make a real and significant investment in the Canadian economy. The Government will also undertake consultations on a potential Business Skills pilot program. Together, these pilots will test new and innovative approaches to business immigration that will better fuel the continued growth of the Canadian economy.

To Follow

As noted above, we were not surprised by the Government of Canada’s decision to both end the FIIP and to terminate the backlog. It remains to be seen which FIIP applications will be terminated and which ones will not be. I would be surprised if the Government of Canada terminated applications where investors committed to loaning the Government of Canada $800,000, and expect that it will only be the $400,000 applications which are terminated. That is just speculation.

It will also be interesting to see what, if anything, Quebec does. Quebec has its own investor program which is almost identical to the FIIP. The processing times for it are massive. What Quebec chooses to do, and/or anything the federal government tries to do on this issue, will be extremely interesting to watch over the next several months.

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DISCLAIMER

Please note that none of the information on this website should be construed as being legal advice. As well, you should not rely on any of the information contained in this website when determining whether and how to apply to a given program. Canadian immigration law is constantly changing, and the information above may be dated. If you have a question about the contents of this blog, or any question about Canadian immigration law, please contact the Author

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DISCLAIMER

Please note that none of the information on this website should be construed as being legal advice. As well, you should not rely on any of the information contained in this website when determining whether and how to apply to a given program. Canadian immigration law is constantly changing, and the information above may be dated. If you have a question about the contents of this blog, or any question about Canadian immigration law, please contact the Author.